Higher spot supply of Carajas fines hurts spread between medium, high grade iron ore fines
The spreads between medium and high grade fines continued to remain under pressure despite the recent sharp fall in iron ore prices in August due to increased spot supply of Carajas fines.
S&P Global Platts assessed the benchmark 62% Fe iron ore index at $85/dmt CFR China Thursday, a fall of $28/dmt from August 1.
Platts assessed the 65% Fe iron ore index at $92.05/dmt CFR China Thursday, with a spread of $7.05/dmt over the 62% index as compared to the spread at $8/dmt on August 1.
According to Platts data, Vale sold 16 spot cargoes of 65% Fe Carajas fines from the start of July to August 22 as compared to 14 spot cargoes over the second quarter of 2019.
Market sources pointed to a shift in the blending ratio of Vale’s Brazilian Blend fines (BRBF) as one of the key factors behind the increase in spot supply.
“The resumption of some production capacity for Vale has allowed them to utilize SFHG over SFHT which has worser specifications for BRBF blending. This has allowed Vale to reduce their usage of Carajas fines from about a 70% ratio back to around 50-55%, ” an international trader said.
As a result of the collapse of Vale’s Brumadinho dam on January 25 and the resulting restrictions of wet processing and stoppage of production capacity for Southern System iron ore, Vale had previously increased their utilization of Carajas fines in the blending mixture of BRBF.
According to a data source seen by Platts, Vale shipped a record 4.858 million mt of Carajas fines in the week starting August 12 from Ponta Da Madeira, as compared to the weekly average of 3.368 million mt for the year so far.
FUTURE SPREAD UNCERTAINTY
Market sources expected demand for Carajas fines to continue improving, but were mixed in their views of the potential upside in spreads between medium and high grade fines.
“Current price spreads with 62% levels around $80-$90/dmt should encourage end-users to increase their utilization of Carajas fines as it is more economically feasible than Pilbara Blend fines (PBF),” a northern Chinese mill source said.
“In addition, discounts are now larger for low grade fines which will increase the attractiveness of a high grade-low grade mixture over a largely medium grade Australian fines feedstock,” the source added.
However, a procurement source disagreed. “Only small end-users are likely to increase their usage of Carajas fines as they have the flexibility to alter their blends easily when the current market dynamics change again, Larger end-users with inflexible blend ratios have to wait for sustained periods of attractive steel margins before committing to a change in their blast furnace feedstock,” he said.
“With expectations of a production and sintering cut ahead of the domestic holiday season, it is unlikely that end-users will want to make any major changes now,” the source added.
However with the sharp drop in iron ore prices pulling down high grade fines, market sources continued to see limited buying interest for concentrates which are usually priced against a 65% Fe index.
“Imported concentrates are still being offered at discounts of around $4-5/dmt without any firm bids. Although concentrate prices are becoming more attractive, Northern [Chinese] end-users will still prefer to utilize domestic low alumina concentrate which are more attractively priced,” a Chinese trader said.
“Production of new concentrate brands like Tacora and with European end-users looking to resell their contracted volumes into Asia, discounts for concentrates will have to increase to attract any demand,” the source added.
“For the sintering blend, there is a very low limit on the maximum ratio of concentrates that can be used without reducing productivity. As for pelletizing, imported and domestic pellet options have fallen significantly and many end-users will prefer to procure pellets rather than concentrates for their own pelletizing purposes,” another trader said.